For those with good recall, this week’s expected pricing of shares in Uber’s initial public offering (IPO) is quite like old times.
The company and its supporters enthuse over the opportunity to take a stake in a market-leading business and one that, furthermore, has big plans to expand beyond its initial business area.
Sceptics, on the other hand, point out that Uber has never made a profit, and that the company has been criticised for what may politely be described as governance issues.
Plying for hire
This can seem like a re-run of the furious debates surrounding the “dot-com boom” of the late Nineties.
So, which side is right?
History’s lessons are mixed. True, a lot of dot-com companies collapsed, and even some survivors proved considerably less valuable than their investors had assumed.
But those investors had called correctly the long-term trend of the technological revolution, as seen today in the likes of Microsoft, Amazon, Facebook and Apple. Then there are comparative newcomers such as Pinterest, Snap, Twitter and Netflix.
Which will Uber prove to be – just another overhyped tech stock or a solid-gold success story?
Before trying to answer that question, let’s start with another. What is Uber?
The company was founded in 2009 as a new type of taxi service. As with all the businesses mentioned above, it could not exist without the digital technology that has transformed everyone’s lives – in Uber’s particular case, the development of websites and mobile-phone apps.
Traditionally, in most jurisdictions, taxis that can vie for hire on the street have been quite strictly regulated. A second tier of less-regulated “private hire” operators – known as minicabs in the UK and limousine services in parts of the US – are allowed only to respond to bookings made over the phone or in person at the company’s office.
A global brand
This division worked pretty well when phones were attached to copper lines and did nothing more than transmit voice messages. But the advent of the smartphone has made it possible for a potential passenger on the street to request a cab with almost as much convenience as if they were flagging down a conventional taxi.
Uber took this idea and added three additional features.
One is that the passenger would be told the fare in advance.
A second is that fares adjust “dynamically” to supply and demand at the time of the booking, in contrast to traditional taxi services, where fare variations are usually limited to higher charges for weekends and night driving.
A third is that, as with some private hire businesses, the drivers would be able to use their own vehicles for work, although some prefer to hire a car for Uber activities.
Mention of car rentals takes us to another major difference between Uber and most taxi operators. Like major car-hire brands, Uber is a global company, operating in 173 countries.
It is also a global word – Uber has entered the language wherever English is spoken, which is ironic as it is German in origin, meaning “over”, as in “higher”.
Now this brand is to float 180 million shares, priced at between $44 and $50 each. Should Uber achieve the higher figure, raising $9 billion, the company will be valued at more than $90 billion.
At the lower end, it would raise about $7.9 billion.
It should be remembered that even the $90 billion figure is noticeably lower than the $120 billion it had been suggested Uber could be worth when the IPO was first announced. But pricing an IPO is not an exact science, and can be something of a moving target.
Furthermore, according to a Bloomberg report on 30 April, Uber has sufficient demand for all the shares it is selling, although the report added: “A spokesman for the San Francisco-based company declined to comment.”
Some way from profit
Investor interest has been drummed up by a series of roadshows in cities including Boston and London. Key to Uber’s pitch is that just as Amazon has expanded far beyond its original role as an online bookseller, so Uber is going to be about a lot more than taxi services, however sophisticated.
Already it is spreading its wings into deliveries of groceries and takeaway food. Next steps include freight transport, scooters and even helicopters. Not to mention “autonomous vehicles” or, to use a blunter expression, driverless cars.
Such a development would be obviously unwelcome to Uber’s drivers and, while it may still be some way in the future, may do little to burnish a corporate reputation that has taken its fair share of knocks.
There were the 2017 allegations of having paid bribes in Asia, attracting the attentions of the US Justice Department. The following year, Uber paid $1.9 million to settle sexual harassment and discrimination claims brought by a group of 56 current and former workers.
Later in 2018, Uber was fined £385,000 by UK regulators for a data breach affecting nearly three million British users.
Along with all this, there have been rumbling issues in many jurisdictions as to whether Uber drivers should enjoy employment rights or indeed whether Uber should be allowed to operate at all.
But for traders and investors, the real question is whether Uber is a good bet or not. On the plus side, it has economies of scale, deep experience, global reach and a brand name recognisable round the world.
One major minus is that it has never made a profit, losing $3.03 billion on its operations last year. Furthermore, as Reuters reported in April when Uber released statutory information ahead of the IPO: “The disclosure…highlighted how far Uber remains from turning a profit, with the company cautioning it expects operating expenses to ‘increase significantly in the foreseeable future’ and it ‘may not achieve profitability’.”
A final thought: the description of Uber as a “ride-hailing app” tended to grate on British ears because, in UK English, “ride” would be rendered “lift”. Funnily enough, a smaller North American rival to Uber called Lyft floated its shares in late March at $72.
They shot up to $78.29 but were last seen at just above $62.
So, is Uber a latter-day dot-com bubble stock, or the “Amazon of transport”? At the moment, traders and investors would seem to be backing the latter outcome.